Philippines Cuts Interest Rate a Second Time to Boost Growth

March 1 (Bloomberg) -- The Philippines cut interest rates
for a second straight meeting, joining neighbors Thailand and
Indonesia in reducing borrowing costs to shore up growth as the
region’s economies strive to withstand Europe’s debt crisis.

Bangko Sentral ng Pilipinas lowered the rate it pays
lenders for overnight deposits by a quarter of a percentage
point to 4 percent, according to a statement in Manila today.
The decision was predicted by 14 of 18 economists in a Bloomberg
News survey. Three expected the benchmark to be left unchanged
while one forecast a half-point cut.

Policy makers are intensifying efforts to stimulate their
economies as the Asian Development Bank warns that Europe’s woes
and rising oil prices will exacerbate slowing expansions across
the region. Lower borrowing costs may aid Philippine President
Benigno Aquino’s efforts to lift growth as he increases
government spending to a record and seeks $16 billion of
investments in mass rail, airports, and schools.

“I would expect rates to have bottomed out at 4 percent,
essentially because of higher oil prices,” said Radhika Rao, an
economist at Forecast Pte in Singapore, who predicted the
reduction. Faster growth in the fourth quarter and higher
government and private spending will influence the next policy
decision, she said. The central bank is due to meet April 19.

Weaker Pace

Asian economies may expand at a weaker pace than originally
forecast this year, Rajat Nag, ADB managing director-general,
said this week. India’s gross domestic product grew at the
slowest pace in more than two years last quarter, a report
showed yesterday.

The central bank kept its inflation forecast of 3.1 percent
for this year and 3.4 percent next year, and Deputy Governor
Diwa Guinigundo told reporters today price gains are expected to
stay within the lower half of the monetary authority’s goal.

“A consistent climb in prices would cement inflation
expectations beyond the forecast, and that could lead to
disanchoring of expectations,” he said, adding that monetary
policy “will have to deal with that.”

Inflation slowed to a 13-month low in January, and the
central bank said this week declining utility costs and a rising
currency have led to further easing. Exports slid an eighth
month in December.

Still, companies including Manila Electric Co., Maynilad
Water Services Inc. and Union Bank of the Philippines are
predicting higher profits this year as economic growth boosts
demand for electricity, water and loans.

The benchmark Philippine Stock Exchange Index gained 0.8
percent today. The peso declined 0.2 percent to 42.82 per dollar.
It is the third-best performer among 11 Asian currencies tracked
by Bloomberg in the past 12 months.